Annual Report
Year Ended March 31, 2011

HARIMA CHEMICALS, INC.

Overview of the Business
The world economy trended towards a recovery during the fiscal year ended March 31, 2011, driven by
the economic growth of emerging countries, but during the second half, the pace of the recovery flagged
due to factors such as financial concerns in Europe, the slowdown of the U.S. economy and increasing
political instability in the Middle East. The Japanese economy, likewise, trended towards slow economic
recovery during the fiscal year, supported by the economic growth of emerging countries and the Japanese
government’s economic stimulus measures. However, during the latter half, ongoing strong yen prompted
fears of downturn in corporate results, and personal consumer spending fell due to the governmental
economic stimulus measures having taken their full course, and together with high crude oil prices, thosefactors prevented the recovery from becoming a full-fledged one.
Under such environment, consolidated net sales of the Group for the current fiscal year increased by
7,999 million yen (up 23.9%) year on year to 41,495 million yen.
Operating income increased by 1,573 million yen (up 117.9%) year on year to 2,908 million yen, Net
income increased by 385 million yen (up 40.5%) to 1,337 million yen.
In January 2011, the Company acquired rosin business from a U.S. chemicals company through a
subsidiary established in the Netherlands as a joint venture between the Company and Mitsubishi
Corporation, and began business under the name of Lawter Inc. As a result of this business acquisition, thenumber of Group sites increased by 11 in 7 countries around the world. In the fiscal year ending March
2012, overseas sales are forecast to account for over 50% of the Group’s sales accordingly.
We are striving to maximize the synergy effects of our work with Lawter B.V., in order to further
enhance our technical development capabilities to promote development of products with high added-value,
and increase the corporate value of the Group.
Status of the Business Segment(Resin & Tall Oil Products Business Products)
This segment primarily includes manufacture and sale of paint resins, resins for printing inks, andsynthetic rubber emulsifiers.
During the current fiscal year, the domestic coating materials industry was on track for a recovery, but
sales lagged in some areas, such as building paints, preventing the recovery from becoming full-fledged.
In the print ink industry, conditions remained severe for both commercial printing and newspaper
printing, not amounting to full-scale recovery.
In the synthetic rubber industry, production volumes rose compared to the previous fiscal year due toincreased automobile-related demand.
Under such circumstance, the Company strove to revise the prices of our products and extend the sales
and scope of business such as the acquisition of rosin business and rosin modified phenolic resins businessduring the previous fiscal year.
Net sales of this segment increased by 3,762 million yen (up 23.7%) year on year to 19,673 million yen,while segment profit increased by 1,238 million yen (up 154.6%) year on year to 2,040 million yen.
(Paper Chemicals)This segment primarily includes manufacture and sale of products such as strengthening agents to add
strength to paper and sizing agents to control the water absorbency of paper.
In the first half of the current fiscal year, the domestic paper manufacturing industry experienced
increased demand for beverage packaging due to the fierce heat, but in the second half, production fell andpaper and cardboard production grew only slightly compared to the previous fiscal year.
Under such circumstance, the Company strove to improve earnings through measures such as domestic
production rationalization and cost reductions, while achieving strong results overseas.
Net sales of this segment increased by 2,001 million yen (up 18.2%) year on year to 12,972 million yen,while segment profit increased by 68 million yen (up 10.4%) year on year to 727 million yen.
(Electronics Materials)
This segment primarily includes miniaturization and performance improvements of electricalcomponents, and manufacture and sale of soldering-related materials that are environmentally suitable.
During the current fiscal year, the domestic electronic equipment industry saw positive growth inshipment of flat-screen televisions, spurred by the “extension of the eco-point system” and also theswitchover to terrestrial digital broadcasting that is scheduled to be completed in July 2011. During the-1-

first half of the current fiscal year, the number of production in the domestic automotive industry rose andexceeded the previous year’s level thanks to the “Eco-Car Subsidy System,” but as economic stimulus
measures came full circle and the yen continued to rise during the second half, exports decreased, leading
to results falling below the previous fiscal year.
Under such circumstance, the Company’s profits were squeezed by rising raw materials costs, however,
our aluminum brazing paste, developed together with an automotive component manufacturer, and our
semiconductor resist resin, developed totally in-house, were employed and used in new fields.
Net sales of this segment increased by 1,102 million yen (up 29.4%) year on year to 4,855 million yen,while segment profit decreased by 1 million yen (down 0.4%) year on year to 308 million yen.
Consolidated Business Performance Trends(Millions of yen unless otherwise stated)
Category

66th Fiscal Year

67th Fiscal Year68th Fiscal Year69th Fiscal Year

(Fiscal year ended
March 2008)(Fiscal year ended
March 2009)(Fiscal year ended
March 2010)(Fiscal year ended
March 2011)

Net sales

38,55335,32833,49541,495

Ordinary income

1,812

385

1,596

2,765

Net income (loss)

2,607

(414)

952

1,337

Net income (loss) per
share (yen)100.41(15.94)

36.66

51.53

Total assets

48,69644,81845,94063,983

Net assets

25,574

27,18028,31729,313(Notes) 1. In accordance with the accounting standards, business results of Lawter Inc. are not reflected in
the consolidated statements of income for the current fiscal year.
2. Net income (loss) per share is calculated based on the weighted average number of issued shares
during the fiscal year after deducting treasury stocks.

-2-

Harima Chemicals, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2011 and 2010

Millions of Yen
2011
2010

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 17)
Notes and accounts receivable (Note 17):
Trade notes
Trade accounts
Associated companies
Allowance for doubtful notes and accounts
Inventories (Note 5)
Deferred tax assets (Note 13)
Other current assets
Total current assets

¥

5,958

¥

3,302

Thousands of
U.S. Dollars(Note 1)
2011
$

2,038
14,920156(38 )10,433
410
2,441

1,732
10,573
159
(49 )
5,094
772
492

24,505
179,4411,870(459 )
125,476
4,935
29,36536,31822,075436,786

10,60917,134
20,166
3,307
601
487
52,304(31,072 )

8,630
16,547
18,951
3,305
1,215
64
48,712(31,462 )

127,585
206,066
242,523
39,7687,224
5,862
629,028(373,687 )Net property, plant and equipment

21,232

17,250255,341

3,314

4,016

39,857

817
126
365
302
1,522
(13 )

828
553
453
778
(13 )

9,827
1,514
4,386
3,632
18,310(162 )

6,433

6,615

77,364

Total investments and other assets

CURRENT LIABILITIES:
Short-term bank loans (Notes 8 and 17)
Current portion of long-term debt (Notes 8 and 17)
Notes and accounts payable (Note 17):
Trade notes
Trade accounts
Associated companies
Construction and other
Income taxes payable
Deferred tax liabilities (Note 13)
Other current liabilities

71,653

PROPERTY, PLANT AND EQUIPMENT (Note 6):
Land (Notes 7 and 8)
Buildings and structures (Notes 7 and 8)
Machinery and equipment
Furniture and fixtures
Lease assets (Note 15)
Construction in progress
Total
Accumulated depreciation

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4 and 17)
Investments in and advances to unconsolidated subsidiaries andassociated companies
Goodwill (Note 3)
Other intangible assets
Deferred tax assets (Note 13)
Other assets (Note 8)
Allowance for doubtful accounts

LIABILITIES AND EQUITY

6,554
698

$ 207,512
7,838

490
9,739
65
448
411
48
1,542

379
4,521
79
259
102
1,063

5,895
117,129
781
5,385
4,946
580
18,546

Total current liabilities

30,65013,655

368,612

LONG-TERM LIABILITIES:Long-term debt (Notes 8 and 17)
Deferred tax liabilities (Note 13)
Long-term deposits received (Note 17)
Liability for retirement benefits (Note 9)
Asset retirement obligations (Note 10)
Other long-term liabilities

1,168
229
1,129
1,191
45
258

1,472
54
1,171
1,036
235

14,041
2,756
13,575
14,320539
3,113

Total long-term liabilities

4,020

3,968

48,344

10,013
9,744
9,267

10,013
9,744
8,241

120,420
117,190
111,451

(62 )

(60 )

(742 )

182(1,165 )27,9791,334

78
0(728 )
27,2881,029

2,191(14,021 )336,489
16,04629,31328,317352,535¥ 63,983¥ 45,940¥ 63,983¥ 45,940$ 769,491¥ 17,255
652¥

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 8, 16 and 18)
EQUITY (Note 11):
Common stock, authorized 59,500,000 shares; issued,
26,080,396 shares
Capital surplus
Retained earnings
Treasury stock - at cost: 130,808 shares in 2011 and
127,813 shares in 2010
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Foreign currency translation adjustments
Total
Minority interests
Total equity

TOTAL

Millions of Yen
2011
2010

Thousands of
U.S. Dollars(Note 1)
2011

TOTAL

$ 769,491

See notes to consolidated financial statements.

-3-

Harima Chemicals, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended March 31, 2011 and 2010

Millions of Yen
2011
2010
NET SALES

Thousands of
U.S. Dollars(Note 1)
2011

¥ 41,495¥ 33,495$ 499,034

31,38525,521

377,444

10,110

7,974

121,590

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Notes 12 and 14)

7,202

6,639

86,614

Operating income

2,908

1,335

34,976OTHER INCOME (EXPENSES) (Notes 4 and 6):
Interest and dividend income
Interest expense
Rental income
Foreign exchange gain (loss)
Equity in earnings of associated companies
Gain on negative goodwill
Fire insurance proceeds
Losses from fire disaster
Other - net

99(230 )
132
(6 )
13
514
(360 )(470 )

74(209 )
126
95
35
319
211

1,195
(2,762)
1,592
(76 )
158
6,183
(4,333)(5,662)Other income (expenses) - net(308 )

651(3,705)

2,600

1,986

31,271

496
610

92
901

5,961
7,337

1,106

993

13,298

1,494

993

17,973

157

41

1,891

COST OF SALES
Gross profit

INCOME BEFORE INCOME TAXES AND MINORITY
INTERESTSINCOME TAXES (Note 13):
Current
Deferred
Total income taxes
NET INCOME BEFORE MINORITY INTERESTSMINORITY INTERESTS IN NET INCOME
NET INCOME

¥

1,337

¥

952

Yen
PER SHARE OF COMMON STOCK (Notes 2.t and 20):
Net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

-4-¥51.5314.00$

16,082

U.S. Dollars¥36.66
12.00

$0.62
0.17

Harima Chemicals, Inc. and Subsidiaries
Consolidated Statement of Comprehensive Income
Year Ended March 31, 2011

Millions of
Yen
2011

Thousands of
U.S. Dollars(Note 1)2011

¥ 1,494$ 17,973

104
0(512 )
0(408 )

1,248(3 )(6,158)0(4,913)COMPREHENSIVE INCOME (Note 19)¥ 1,086$ 13,060

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO (Note 19):
Owners of the parent
Minority interests¥1,00482$12,075985

NET INCOME BEFORE MINORITY INTERESTSOTHER COMPREHENSIVE INCOME (Note 19):
Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting
Foreign currency translation adjustments
Share of other comprehensive income in associates
Total other comprehensive income

See notes to consolidated financial statements.

-5-

Harima Chemicals, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
Years Ended March 31, 2011 and 2010
Thousands

BALANCE, APRIL 1, 2009
Adjustment of retained earnings for newly consolidated
subsidiaries
Net income
Cash dividends, ¥12.00 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2010
Net income
Cash dividends, ¥12.00 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2011

BALANCE, MARCH 31, 2010

Number of Sharesof Common Stock
Outstanding

CommonStockCapitalSurplusRetained
Earnings

TreasuryStock25,956¥ 10,013¥ 9,744¥ 7,600¥ (59 )¥ (385 )

¥ 1

¥

(3 )
25,953

9,744

8,241

(60 )

25,950¥ 9,744¥ 9,267¥ (62 )

CommonStockCapitalSurplusRetained
Earnings

TreasuryStock$ 120,420$ 117,190$$ (724 )99,114$ 111,451$ (742 )See notes to consolidated financial statements-6-¥ 27,178

121
1,029

28,317

(1 )

(84 )

78

0

(728 )

27,288305

1,337(311 )
(2 )
(28 )

104

(0 )

(437 )

1,337(311 )(2 )(333 )¥ 182¥ -¥ (1,165 )¥ 27,979¥ 1,334¥ 29,313

Total

Minority
Interests

Total Equity(8,770 )$ 328,176$ 12,374$ 340,550

3,672

16,082(3,745 )(18 )(334 )$ 16,046$ 352,535

Thousands of U.S. Dollars (Note 1)
Accumulated Other Comprehensive Income
Unrealized
Deferred Gain
Foreign
Gain on(Loss) on
Currency
Derivatives under
Available-for-saleTranslation
Hedge Accounting Adjustments
Securities
$

943

$ 3

$

1,248

(3 )

(5,251 )16,082(3,745 )(18 )(4,006 )$ 2,191$ -$ (14,021 )$ 336,489(18 )$ 117,190

908

463

16,082(3,745 )$ 120,420¥

952(311 )
(1 )
499

(2 )
¥ 10,013

Total Equity952(311 )
(1 )
378

1,337
(311 )(3 )Minority
Interests¥ 26,270(1 )
10,013

Total(644 )

952(311 )Net income
Cash dividends, $0.14 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2011

Millions of Yen
Accumulated Other Comprehensive Income
Unrealized
Deferred Gain
Foreign
Gain (Loss) on(Loss) on
Currency
Available-for-saleTranslation
Derivatives under
Hedge Accounting Adjustments
Securities

Harima Chemicals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2011 and 2010
Thousands of
U.S. Dollars(Note 1)
2011

Millions of Yen
2011
2010
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes - paid
Depreciation and amortization
Loss on impairment of long-lived assets
Foreign exchange gain
Gain on sales of property, plant and equipment
Gain on negative goodwill
Changes in assets and liabilities, net of effects from newly
consolidated subsidiaries:
Increase in trade notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in trade notes and account payable
Other - net
Total adjustments
Net cash provided by operating activities

¥

2,600

¥ 1,986$

31,271(170 )
1,621
54
(95 )
(1 )
-

(92 )
1,690
82
(25 )
(94 )
(319 )(2,047)
19,491648(1,143)(12 )-(359 )(663 )
1,400(174 )
1,613
4,213(1,742 )683(429 )
524
278
2,264

(4,323)(7,975)
16,831(2,071)
19,39950,670INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of investment securities
Proceeds from sales and redemption of investment securities
Payment for purchase of consolidated subsidiaries, net of cash andcash equivalents acquired
Payment of acquisition of business
Other - net
Net cash used in investing activities(1,559)3(515 )
1,174(1,149 )135(781 )
885(18,750 )33(6,190)14,121(10,380 )(79 )(11,356 )(442 )(190 )(34 )(1,576 )(124,834 )(955 )(136,575 )FINANCING ACTIVITIES:Net change in short-term bank loans
Proceeds from long-term debt
Payments from long-term debt
Dividends paid
Other - net
Net cash provided by (used in) financing activities

10,763132(670 )(311 )
75
9,989(675 )
399(621 )(311 )(148 )(1,356 )

129,443
1,584(8,058)(3,745)902
120,126

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH
AND CASH EQUIVALENTS(190 )

9(2,283)NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS

2,656(659 )

31,938

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

3,302

3,961

39,715

5,958¥ 3,302

CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

-7-

¥

$

71,653

Harima Chemicals, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended March 31, 2011 and 2010
1.

BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set
forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in
conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different incertain respects as to application and disclosure requirements of International Financial Reporting Standards.
Under Japanese GAAP, a consolidated statement of comprehensive income is required from the fiscal year
ended March 31, 2011 and has been presented herein. Accordingly, accumulated other comprehensive income
is presented in the consolidated balance sheet and the consolidated statement of changes in equity. Information
with respect to other comprehensive income for the year ended March 31, 2010 is disclosed in Note 19. In
addition, "net income before minority interests" is disclosed in the consolidated statement of income from theyear ended March 31, 2011.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been
made to the consolidated financial statements issued domestically in order to present them in a form which ismore familiar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Harima
Chemicals, Inc. (the "Company") is incorporated and operates. The translations of Japanese yen amounts into
U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at therate of ¥83.15 to $1, the approximate rate of exchange at March 31, 2011. Such translations should not be
construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any
other rate.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation - The consolidated financial statements include the accounts of the Company and all its
subsidiaries (together, the "Group").
Under the control or influence concept, those companies in which the Company directly is able to exercise
control over operations are fully consolidated.
Investments in associated companies are accounted for by the equity method.
The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at thedate of acquisition is being amortized over a period not exceeding 20 years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profit included in assets resulting from transactions within the Group is eliminated.

-8-

b.

Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial
Statements - In May 2006, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Practical
Issues Task Force (PITF) No. 18, "Practical Solution on Unification of Accounting Policies Applied toForeign Subsidiaries for the Consolidated Financial Statements". PITF No. 18 prescribes: (1) the
accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions
and events under similar circumstances should in principle be unified for the preparation of theconsolidated financial statements, (2) financial statements prepared by foreign subsidiaries in accordancewith either International Financial Reporting Standards or the generally accepted accounting principles in
the United States of America tentatively may be used for the consolidation process, (3) however, thefollowing items should be adjusted in the consolidation process so that net income is accounted for inaccordance with Japanese GAAP unless they are not material: 1) amortization of goodwill; 2) scheduled
amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; 3) expensing
capitalized development costs of R&D; 4) cancellation of the fair value model accounting for property,
plant, and equipment and investment properties and incorporation of the cost model accounting; 5)recording the prior years' effects of changes in accounting policies in the income statement whereretrospective adjustments to financial statements have been incorporated; and 6) exclusion of minority
interests from net income, if contained.

c.

Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method - In
March 2008, the ASBJ issued ASBJ Statement No. 16, "Accounting Standard for Equity Method of
Accounting for Investments". The new standard requires adjustments to be made to conform the associate's
accounting policies for similar transactions and events under similar circumstances to those of the parent
company when the associate's financial statements are used in applying the equity method unless it isimpracticable to determine adjustments. In addition, financial statements prepared by foreign associatedcompanies in accordance with either International Financial Reporting Standards or the generally accepted
accounting principles in the United States tentatively may be used in applying the equity method if thefollowing items are adjusted so that net income is accounted for in accordance with Japanese GAAP unlessthey are not material: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss ofpensions that has been directly recorded in the equity; (3) expensing capitalized development costs of
R&D; (4) cancellation of the fair value model accounting for property, plant, and equipment and investment
properties and incorporation of the cost model accounting; (5) recording the prior years' effects of changes
in accounting policies in the income statement where retrospective adjustments to the financial statements
have been incorporated; and (6) exclusion of minority interests from net income, if contained. This
standard was applicable to equity method of accounting for fiscal years beginning on or after April 1, 2010.
The Company applied this accounting standard effective April 1, 2010.

d.

Business Combination - In October 2003, the Business Accounting Council (the "BAC") issued aStatement of Opinion, "Accounting for Business Combinations", and in December 2005, the ASBJ issued
ASBJ Statement No. 7, "Accounting Standard for Business Divestitures" and ASBJ Guidance No. 10,"Guidance for Accounting Standard for Business Combinations and Business Divestitures". The
accounting standard for business combinations allows companies to apply the pooling of interests methodof accounting only when certain specific criteria are met such that the business combination is essentiallyregarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests
criteria, the business combination is considered to be an acquisition and the purchase method of accounting
is required. This standard also prescribes the accounting for combinations of entities under common
control and for joint ventures.

-9-In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ
Statement No. 21, "Accounting Standard for Business Combinations". Major accounting changes under therevised accounting standard are as follows: (1) The revised standard requires accounting for businesscombinations only by the purchase method. As a result, the pooling of interests method of accounting is nolonger allowed. (2) The current accounting standard accounts for the research and development costs to be
charged to income as incurred. Under the revised standard, in-process research and development (IPR&D)
acquired in the business combination is capitalized as an intangible asset. (3) The previous accounting
standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a
period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchasegain in profit or loss immediately on the acquisition date after reassessing and confirming that all of theassets acquired and all of the liabilities assumed have been identified after a review of the procedures usedin the purchase allocation. This standard was applicable to business combinations undertaken on or after
April 1, 2010 with early adoption permitted for fiscal years beginning on or after April 1, 2009.
Business combination for the fiscal year ended March 31, 2011, was as follows:
The Company acquired 90% of the outstanding shares of Hexion Specialty Chemicals Netherlands 1
B.V. on January 31, 2011 and accounted for it by the purchase method of accounting. The related
goodwill is systematically amortized over 3 years.
e.

Cash Equivalents - Cash equivalents are short-term investments that are readily convertible into cash andthat are exposed to insignificant risk of changes in value. Cash equivalents include time deposits andcertificate of deposits, all of which mature or become due within three months of the date of acquisition.

f.

Inventories - Inventories are principally stated at the lower of cost, determined by the moving-averagemethod, or net selling value.
Certain consolidated foreign subsidiaries are stated at the lower of cost, determined by the first-in, first-out
method, or net selling value.

g.

Investment Securities - Investment securities are classified and accounted for, as follows: Marketableavailable-for-sale securities, are reported at fair value, with unrealized gains and losses, net of applicabletaxes, reported in a separate component of equity.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average method.
For other than temporary declines in fair value, investment securities are reduced to net realizable value by
a charge to income.

h.

Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation ofproperty, plant and equipment of the Company and its consolidated domestic subsidiaries is principally
computed by the declining-balance method, while the straight-line method is applied to buildings acquired
after April 1, 1998, and certain domestic subsidiaries and foreign subsidiaries apply the straight-line
method, using rates based on the estimated useful lives of the assets. The range of useful lives is from 5 to
50 years for buildings, from 4 to 17 years for machinery and equipment.

i.

Long-lived Assets - The Group reviews its long-lived assets for impairment whenever events or changes incircumstance indicate the carrying amount of an asset or asset group may not be recoverable. An
impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of
the undiscounted future cash flows expected to result from the continued use and eventual disposition of theasset or asset group. The impairment loss would be measured as the amount by which the carrying amountof the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.

- 10 -

j.

Other Assets - Amortization of capitalized software costs is computed using the straight-line method over 5
years, the estimated useful life of the assets. Amortization of customer lists costs is computed using thestraight-line method over 5 years, the estimated economic life of the assets.

k.

Retirement Benefits - The Company and domestic subsidiaries have a funded defined benefit pension plan,
defined contribution pension plan and severance lump-sum payment plan covering substantially all of its
employees.
The Company has adopted an accounting standard for employees' retirement benefits and accounted for theasset for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet
date.
Retirement allowances for directors and corporate auditors are recorded to state the liability at the amountthat would be required if all directors and corporate auditors retired at each balance sheet date.

l.

Asset Retirement Obligations - In March 2008, the ASBJ published the accounting standard for asset
retirement obligations, ASBJ Statement No. 18 "Accounting Standard for Asset Retirement Obligations"and ASBJ Guidance No. 21 "Guidance on Accounting Standard for Asset Retirement Obligations". Under
this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by
law or contract that results from the acquisition, construction, development and the normal operation of atangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement
obligation is recognized as the sum of the discounted cash flows required for the future asset retirement andis recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If areasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement
obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement
obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset
retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of
the liability. The asset retirement cost is subsequently allocated to expense through depreciation over theremaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any
subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows arereflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of
the related asset retirement cost. This standard was effective for fiscal years beginning on or after April 1,
2010.
The Company applied this accounting standard effective April 1, 2010. The effect of this change was todecrease operating income by ¥2 million ($30 thousand) and income before income taxes and minority
interests by ¥32 million ($388 thousand).

m. Research and Development Costs - Research and development costs are charged to income as incurred.
n.

Leases - In March 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard for Lease
Transactions", which revised the previous accounting standard for lease transactions issued in June 1993.
The revised accounting standard for lease transactions was effective for fiscal years beginning on or after
April 1, 2008.
Under the previous accounting standard, finance leases that were deemed to transfer ownership of theleased property to the lessee were capitalized. However, other finance leases were permitted to beaccounted for as operating lease transactions if certain "as if capitalized" information was disclosed in thenote to the lessee's financial statements. The revised accounting standard requires that all finance leasetransactions be capitalized to recognize lease assets and lease obligations in the balance sheet.

- 11 -

The Company applied the revised accounting standard effective April 1, 2008. In addition, the Company
accounted for leases which existed at the transition date and do not transfer ownership of the leased
property to the lessee as acquisition cost of lease assets measured at the obligations under finance leases lessinterest expense at the transition date.
All other leases are accounted for as operating leases.
o.

Bonuses to Directors and Corporate Auditors - Bonuses to directors and corporate auditors are accrued at
the year end to which such bonuses are attributable.

p.

Income Taxes - The provision for income taxes is computed based on the pretax income included in the
consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. Deferred taxes are measured by applying currently
enacted tax laws to the temporary differences.

q.

Foreign Currency Transactions - All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet
date. The foreign exchange gains and losses from translation are recognized in the consolidated statements
of income to the extent that they are not hedged by forward exchange contracts.

r.

Foreign Currency Financial Statements - The balance sheet accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except
for equity, which is translated at the historical rate. Differences arising from such translation were shown as"Foreign currency translation adjustments" under accumulated other comprehensive income in a separate
component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated
into yen at the average exchange rate.

s.

Derivative Financial Instruments - The Group uses derivative financial instruments to manage its
exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts andinterest rate swaps are utilized by the Group to reduce foreign currency exchange and interest rate risks.
The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as
follows: (1) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains
or losses on derivative transactions are recognized in the income statement and (2) for derivatives used forhedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectivenessbetween the hedging instruments and the hedged items, gains or losses on derivatives are deferred until
maturity of the hedged transactions.
Long-term debt denominated in foreign currencies for which foreign exchange forward contracts are used
to hedge the foreign currency fluctuations are translated at the contracted rate if the forward contracts
qualify for hedge accounting.
The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are notremeasured at market value but the differential paid or received under the swap agreements are recognized
and included in interest expenses or income.

t.

Per Share Information - Basic net income per share is computed by dividing net income available tocommon shareholders by the weighted-average number of common shares outstanding for the period.
Diluted net income per share is not disclosed because there are no outstanding potentially dilutive
securities.

- 12 -Cash dividends per share presented in the accompanying consolidated statements of income are dividends
applicable to the respective years including dividends to be paid after the end of the year.
u.

New Accounting Pronouncements
Accounting Changes and Error Corrections - In December 2009, ASBJ issued ASBJ Statement No. 24"Accounting Standard for Accounting Changes and Error Corrections" and ASBJ Guidance No. 24"Guidance on Accounting Standard for Accounting Changes and Error Corrections". Accounting
treatments under this standard and guidance are as follows: (1) Changes in Accounting Policies - When a
new accounting policy is applied with revision of accounting standards, the new policy is applied
retrospectively unless the revised accounting standards include specific transitional provisions. When therevised accounting standards include specific transitional provisions, an entity shall comply with thespecific transitional provisions. (2) Changes in Presentations - When the presentation of financial
statements is changed, prior period financial statements are reclassified in accordance with the newpresentation. (3) Changes in Accounting Estimates - A change in an accounting estimate is accounted for in
the period of the change if the change affects that period only, and is accounted for prospectively if thechange affects both the period of the change and future periods. (4) Corrections of Prior Period Errors When an error in prior period financial statements is discovered, those statements are restated. Thisaccounting standard and the guidance are applicable to accounting changes and corrections of prior period
errors which are made from the beginning of the fiscal year that begins on or after April 1, 2011.

3.

BUSINESS COMBINATION(a) Business combination of Hexion Specialty Chemicals Netherlands 1 B.V.
The Company acquired 90% of the share capital of Hexion Specialty Chemicals Netherlands 1 B.V. on
January 31, 2011. Hexion Specialty Chemicals Netherlands 1 B.V. and 18 other subsidiaries develop,
manufacture, and sell Rosin modified phenolic resins for printing inks business, Resins for adhesives
business, Synthetic rubber emulsifiers business. The purpose of the business combination is thisacquisition will contribute to further continued expansion of Resin & Tall Oil Products business and expand
our presence around the world by achieving geographical synergy.
Hexion Specialty Chemicals Netherlands 1 B.V. and 18 other subsidiaries were newly consolidated by theacquisition. But only the balance sheets of the acquired companies are consolidated, and statement ofincome is not consolidated in this fiscal year, because of end of purchase.
The Company accounted for this business combination by the purchase method of accounting.
The acquisition cost was ¥11,497 million ($138,266 thousand) in cash in accordance with the acquired
dated January 31, 2011. Additionally, acquisition related costs were ¥293 million ($3,529 thousand).
The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on
their respective fair values. Goodwill recorded in connection with the acquisition totaled ¥126 million($1,514 thousand), and will be amortized over 3 years.

- 13 -

The estimated fair values of the assets acquired and the liabilities assumed at the acquisition date are as
follows:

Current assets
Fixed assets
Goodwill
Total assets acquired
Current liabilities
Long-term liabilities
Total liabilities assumed
Minority interests
Cost of acquisition

Millions ofYen

Thousands of
U.S. Dollars¥ 12,320
4,585
126¥ 17,031(4,639 )(473 )¥ (5,112 )(129 )¥ 11,790$ 148,168
55,142
1,514$ 204,824(55,791 )(5,684)$ (61,475 )(1,554)$ 141,795

Pro forma results of operations have not been presented because the effects of these business combinations,individually and in the aggregate, were not practicable to our consolidated results of operations.
(b) Business combination of Nippon Filler Metals, Ltd.
The Company acquired 100% of the share capital of Nippon Filler Metals, Ltd. on October 30, 2010.
Nippon Filler Metals, Ltd. manufacture and sell solder and soldering-related products. The purpose of thebusiness combination is this acquisition will contribute to Expansion of solder business and further
enhancement of product development capabilities. The results of operations for Nippon Filler Metals, Ltd.
are included in the Company's consolidated financial statements of income period from October 1, 2009
through March 31, 2010.
The Company accounted for this business combination by the purchase method of accounting.
The acquisition cost was ¥175 million in cash.
The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on
their respective fair values. Goodwill recorded in connection with the acquisition totaled ¥19 million, andwill be charged to income when incurred.
If this business combination had been completed as of April 1, 2009, the beginning of the current fiscal year,
the unaudited condensed pro forma consolidated financial statement of income for the year ended March 31,
2010 would be as follows:
Millions of
Yen
Sales
Operating income
Net income

¥ 451
9
2

(c) Business combination of Hitachi Kasei Polymer Company Ltd. (Tokushima Plant)
The Company acquired Rosin modified phenolic resins business of Hitachi Kasei Polymer Company Ltd.
(Tokushima Plant) on December 30, 2010. The purpose of the business combination is this acquisition willcontribute to further expansion and reinforcement of rosin modified phenolic resins business for printing
inks.

- 14 -

The Company accounted for this business combination by the purchase method of accounting.
The acquisition cost was ¥190 million in cash.
The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on
their respective fair values. Goodwill recorded in connection with the acquisition totaled ¥278 million, andwill be charged to income when incurred.
(d) Business combination of Xinyi Rihong Plastic Chemical Co., Ltd.
The Company acquired 80% of the share capital of Xinyi Rihong Plastic Chemical Co., Ltd. on December
30, 2010. Xinyi Rihong Plastic Chemical Co., Ltd. manufacture and sell resins for inks and adhesives. The
purpose of the business combination is this acquisition will contribute to further expansion andreinforcement of rosin modified phenolic resins business for printing inks.
Xinyi Rihong Plastic Chemical Co., Ltd. was newly consolidated by the acquisition. But only the balance
sheets of the acquired company are consolidated, and statement of income is not consolidated in this fiscal
year, because of end of purchase.
The Company accounted for this business combination by the purchase method of accounting.
The acquisition cost was ¥324 million in cash.
The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on
their respective fair values. Goodwill recorded in connection with the acquisition totaled ¥18 million, andwill be charged to income when incurred.
(e) Business combination of Xinyi Zhonglin Rosin Co., Ltd.
The Company acquired 81% of the share capital of Xinyi Zhonglin Rosin Co., Ltd. on December 30, 2010.
Xinyi Zhonglin Rosin Co., Ltd. manufacture and sell gum rosin and turpentine. The purpose of the businesscombination is this acquisition will contribute to further expansion and reinforcement of rosin modified
phenolic resins business for printing inks.
Xinyi Zhonglin Rosin Co., Ltd. was newly consolidated by the acquisition. But only the balance sheets of
the acquired company are consolidated, and statement of income is not consolidated in this fiscal year,
because of end of purchase.
The Company accounted for this business combination by the purchase method of accounting.
The acquisition cost was ¥133 million in cash.
The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on
their respective fair values. Goodwill recorded in connection with the acquisition totaled ¥4 million, andwill be charged to income when incurred.

- 15 -

4.

INVESTMENT SECURITIESInvestment securities as of March 31, 2011 and 2010 consisted of the following:Thousands of
U.S. Dollars
2011

Millions of Yen
2010
2011
Non-current:
Equity securities
Trust fund investments and other¥ 2,0811,233¥ 2,323
1,693$ 25,030
14,827

Total¥ 3,314¥ 4,016$ 39,857

The costs and aggregate fair values of investment securities at March 31, 2011 and 2010 were as follows:

March 31, 2011

Cost

Securities classified as:
Available-for-sale:
Equity securities
Debt securities¥ 1,688
1,292

March 31, 2010

Cost

Securities classified as:
Available-for-sale:
Equity securities
Debt securities¥ 1,973
1,801

Cost

March 31, 2011
Securities classified as:
Available-for-sale:
Equity securities
Debt securities$ 20,298
15,537

Millions of Yen
Unrealized
Unrealized
Gains
Losses

¥ 579
0

¥ 220
59

Millions of Yen
Unrealized
Unrealized
Gains
Losses

¥ 579
11

¥ 263
126

Fair
Value

¥ 2,047
1,233
Fair
Value

¥ 2,289
1,686

Thousands of U.S. Dollars
Unrealized
Unrealized
Gains
LossesFair
Value$ 6,9621$ 24,622
14,822$ 2,638
716

Carrying amounts of available-for-sale securities whose fair value is not readily determinable as of March 31,
2011 and 2010 were as follows:
Millions of Yen
2010
2011
Available-for-sale:
Equity securities
Other

¥ 34
0

- 16 -¥ 34
7

Thousands of
U.S. Dollars
2011
$ 408
5

The information for available-for-sale securities which were sold during the years ended March 31, 2011 and2010 was as follows:
Millions of Yen
Realized
Gains

Realized
Loss

164
1,003

¥ 52
13

¥ 6
19

¥ 1,167

¥ 65

¥ 25

March 31, 2010

Proceeds

Millions of Yen
Realized
Gains

Realized
Loss

Available-for-sale:
Equity securities
Debt securities

¥

1
478

¥ 0
5

¥ 4

¥ 479

¥ 5

¥ 4

March 31, 2011

Proceeds

Available-for-sale:
Equity securities
Debt securities

¥

Total

Total

Thousands of U.S. Dollars
Realized
Realized
Proceeds
Gains
Loss

March 31, 2011
Available-for-sale:
Equity securities
Debt securities

$

Total

1,978
12,061

$ 625
159

$ 75
230

$ 14,039

$ 784

$ 305

The impairment losses on available-for-sale equity securities for the years ended March 31, 2011 and 2010 were¥182 million ($2,184 thousand) and ¥93 million, respectively are included in other expenses other - net in the
consolidated statements of income.
5.

INVENTORIESInventories at March 31, 2011 and 2010 consisted of the following:
Millions of Yen
2010
2011

Thousands of
U.S. Dollars
2011

Finished products
Work in process
Raw materials and supplies

¥

4,372
222
5,839

¥ 1,620
205
3,269

$

Total

¥ 10,433¥ 5,094$ 125,476- 17 -

52,581
2,673
70,222

6.

LONG-LIVED ASSETSThe Group recognized impairment losses of ¥54 million ($648 thousand), which is included in other expenseother - net in the consolidated statements of income, for the year ended March 31, 2011. The impairment loss ismainly recognized for the buildings and structures and machinery and equipment of plant in China due torecoverable amount of the assets were lower than the carrying amounts of the assets. The recoverable amount of
the assets were measured at its market value. Also the Group recognized the impairment loss for the machineryand equipment not in use in the plant in Czech Republic to the net selling price at disposition.
The Group recognized impairment losses of ¥82 million, which is included in other expense other - net in the
consolidated statements of income, for the year ended March 31, 2010. The impairment loss is mainly
recognized for the buildings and structures, lease assets and land in golf course and hotel in Okayama, Japan due
to recoverable amount of the assets were lower than the carrying amounts of the assets. The recoverable amountof the assets were measured at its selling price based on the report of appraiser. Also the Group recognized the
impairment loss for the machinery and equipment not in use in Kakogawa plant in Japan to the net selling priceat disposition.

7.

INVESTMENT PROPERTYIn November, 2008, the ASBJ issued ASBJ Statement No. 20 "Accounting Standard for Investment Property
and Related Disclosures" and issued ASBJ Guidance No. 23 "Guidance on Accounting Standard for Investment
Property and Related Disclosures". This accounting standard and the guidance were applicable to investment
property and related disclosures at the end of the fiscal years ending on or after March 31, 2010. The Groupapplied the accounting standard and guidance effective March 31, 2010.
The Group owns certain rental properties such as office buildings and land. The net of rental income andoperating expenses for those rental properties was ¥129 million ($1,546 thousand) for the fiscal year ended
March 31, 2011.
In addition, the carrying amounts, changes in such balances and market prices of such properties are as follows.
Millions of Yen
Carrying AmountMarch 31,
April 1, 2010
Increase
2011¥3,453¥13¥3,466

Millions of Yen
Carrying AmountMarch 31,
April 1, 2009
Decrease
2010¥3,573¥(120)¥3,453Thousands of U.S. Dollars
Carrying AmountMarch 31,
April 1, 2010
Increase
2011$41,533$156$41,689- 18 -

Fair Value
March 31,
2011
¥4,422
Fair Value
March 31,2010
¥3,615
Fair Value
March 31,
2011
$53,185

Notes:8.

1)

Carrying amount recognized in the balance sheet is net of accumulated depreciation and accumulated
impairment losses, if any.

2)

Increase during the fiscal year ended March 31, 2011 primarily represents the acquisition of certain
properties of ¥64 million ($768 thousand), and decrease primarily represents the depreciation andamortization of ¥48 million ($574 thousand). Increase during the fiscal year ended March 31, 2010
primarily represents the acquisition of certain properties of ¥20 million, and decrease primarily
represents the depreciation and amortization of ¥64 million and the recognition of impairment loss of¥64 million.

3)

Fair value of properties is measured by the Group in accordance with its Real-estate Appraisal
Standard.

SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans at March 31, 2011 and 2010 consisted of notes to banks and bank overdrafts. The averageinterest rates applicable to the short-term bank loans as of March 31, 2011 and 2010 were 1.4% and 2.1%,
respectively.
Long-term debt at March 31, 2011 and 2010 consisted of the following:Thousands of
U.S. Dollars
2011

Millions of Yen
2010
2011
Loans from banks and other financial institutions, due
serially to 2016 with interest rates ranging from
0.9% to 6.7% (2011) and from 1.0% to 6.7% (2010):
Collateralized
Unsecured
Obligations under finance leases
Total
Less current portionLong-term debt, less current portion

¥

8
1,163
649
1,820
(652 )¥¥ 1,168

23
1,781
366
2,170
(698 )$¥ 1,472

100
13,975
7,804
21,879(7,838)$ 14,041

Annual maturities of long-term debt, at March 31, 2011, for the next five years and thereafter were as follows:
Millions of
Yen

Year Ending March 31
2012
2013
2014
2015
2016
2017 and thereafter

¥

Total

¥ 1,820- 19 -

652
268
181
120
78
521

Thousands of
U.S. Dollars
$

7,838
3,217
2,176
1,446
931
6,271

$ 21,879

The carrying amounts of assets pledged as collateral for short-term bank loans of ¥418 million ($5,025 thousand)and the above collateralized current portion of long-term debt of ¥8 million ($100 thousand) at March 31, 2011were as follows:
Thousands of
U.S. Dollars

Millions ofYen
Land
Buildings and structures
Other assets

¥ 41
94
40

$

494
1,131
484

Total

¥ 175

$ 2,109

As is customary in Japan, the Company maintains substantial deposit balances with banks with which it hasborrowings. Such deposit balances are not legally or contractually restricted as to withdrawal.
General agreements with respective banks provide, as is customary in Japan, that additional collateral must be
provided under certain circumstances if requested by such banks and that certain banks have the right to offset
cash deposited with them against any long-term or short-term debt or obligation that becomes due and, in case ofdefault and certain other specified events, against all other debt payable to the banks. The Company has neverbeen requested to provide any additional collateral.
9.

RETIREMENT AND PENSION PLANS
The Company has severance payment plans for employees, directors and corporate auditors.
Under most circumstances, employees terminating their employment are entitled to retirement benefits
determined based on the rate of pay at the time of termination, years of service and certain other factors. Suchretirement benefits are made in the form of a lump-sum severance payment or annuity payments from a trustee.
Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory
retirement age, by death.
The liability for retirement benefits at March 31, 2011 and 2010 for directors and corporate auditors is ¥418
million ($5,028 thousand) and ¥371 million, respectively is included in Liability for retirement benefits in theConsolidated Balance Sheet. The retirement benefits for directors and corporate auditors are paid subject to theapproval of the shareholders.
The liability for employees' retirement benefits at March 31, 2011 and 2010 consisted of the following:
Millions of Yen
2010
2011

Thousands of
U.S. Dollars
2011

Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial loss

¥ 2,465(1,276)(416 )¥ 2,432(1,290 )(476 )$ 29,641(15,345 )(5,005)Net liability

¥

¥

$

- 20 -

773

666

9,291

The components of net periodic retirement benefit costs for the years ended March 31, 2011 and 2010 are as
follows:
Thousands of
U.S. Dollars
2011

Millions of Yen
2010
2011
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Net periodic retirement benefit costs
Gain on revision of retirement benefit plan
Premium payments to defined contribution pension planand other

¥ 229
47
72
348
-

¥ 223
49
113
385
(106 )$ 2,753
562
871
4,186
-

87

85

1,040

Total

¥ 435

¥ 364

$ 5,226

Assumptions used for the years ended March 31, 2011 and 2010 are set forth as follows:
2011
Discount rate
Expected rate of return on plan assets
Allocation method of the retirement benefits
expected to be paid at the retirement date
Recognition period of actuarial gain or loss
10.

2.0%
0.0%
Straight-line method
based on years ofservice
14 years

2010
2.0%
0.0%
Straight-line method
based on years ofservice
14 years

ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the year ended March 31, 2011 were as follows:

Balance at beginning of year
Reconciliation associated with passage of time
Balance at end of year
11.

Millions ofYen

Thousands of
U.S. Dollars

¥ 44
1
45

$ 532
7
539

EQUITYJapanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant
provisions in the Companies Act that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteriasuch as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of
Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two
years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except
for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles ofincorporation. The Company meets all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders
subject to a certain limitation and additional requirements.

- 21 -

Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if thearticles of incorporation of the company so stipulate. The Companies Act provides certain limitations on
the amounts available for dividends or the purchase of treasury stock. The limitation is defined as theamount available for distribution to the shareholders, but the amount of net assets after dividends must be
maintained at no less than ¥3 million.
(b) Increases/decreases and transfer of common stock, reserve and surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such dividends until the total of aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under theCompanies Act, the total amount of additional paid-in capital and legal reserve may be reversed without
limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital,
other capital surplus and retained earnings can be transferred among the accounts under certain conditions
upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders which is determined by specific formula. Under theCompanies Act, stock acquisition rights are now presented as a separate component of equity. The
Companies Act also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.
12.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the fiscal years ended March 31, 2011 and 2010 principallyconsisted of the following:
Millions of Yen
2010
2011
Employees' salaries and bonuses
Net periodic retirement benefit costs
Transport cost
Depreciation cost
Research and development

13.

¥ 1,554
164
1,361
363
1,447

¥ 1,445
177
1,101
388
1,308

Thousands of
U.S. Dollars
2011$ 18,686
1,967
16,3704,363
17,397

INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in theaggregate, resulted in a normal effective statutory tax rate of approximately 40.6% for the years ended March 31,
2011 and 2010.

- 22 -

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax
assets and liabilities at March 31, 2011 and 2010 are as follows:
Thousands of
U.S. Dollars
2011

Millions of Yen
2010
2011
Deferred tax assets:
Tax loss carryforwards
Impairment loss on long-lived assets
Loss on revaluation of investment securities
Retirement benefits to directors and corporate
auditors
Property, plant and equipment
Unrealized loss on available-for-sale securities
Other
Less valuation allowance
Total
Deferred tax liabilities:
Reserve for deferred gains on sales of property, plantand equipment
Unrealized gain on available-for-sale securities
Other
Total
Net deferred tax assets¥ 1,2221,570
293¥ 1,258
1,596
356$ 14,699
18,880
3,529

170
97
112
538
(3,274)
¥ 728

151
97
157
368
(2,613 )¥ 1,370

2,044
1,165
1,349
6,463
(39,378 )$ 8,751

¥

¥

$

¥

98
108
87
293

¥

104
95
199

$

1,180
1,294
1,046
3,520

¥

435

¥ 1,171$

5,231

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in theaccompanying consolidated statements of income for the year ended March 31, 2010 is as follows:2010
Normal effective statutory tax rate
Expenses not deductible for income tax purposes
Inhabitants' per capita levy
Tax credit for research and development expenses
Equity in earnings of associated companies
Net change in valuation allowance
Other - net

40.6 %
1.9
1.7(0.1 )(0.6 )
7.7(1.2 )

Actual effective tax rate

50.0 %As the difference between the normal effective statutory tax rate and the actual effective tax rate reflected in theaccompanying consolidated statement of income for the year ended March 31, 2011 is not more than 5% of thenormal effective statutory tax rate, a reconciliation has not been disclosed as permitted under Japanese GAAP.
14.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥1,447 million ($17,397 thousand) and ¥1,308 million
for the years ended March 31, 2011 and 2010, respectively.

- 23 -

15.

LEASESThe Group leases certain structures, machinery and equipment and other assets.
Total rental expenses including lease payments for the years ended March 31, 2011 and 2010 were ¥146 million($1,753 thousand) and ¥175 million, respectively.

16.

COMMITMENTS AND CONTINGENT LIABILITIESThe Company executed a ¥5,000 million ($60,132 thousand) committed borrowing facility with a domestic bankduring the fiscal year ended March 31, 2011.
As of March 31, 2011, the Company transferred its trade accounts receivable of ¥1,172 million ($14,093
thousand) to a factoring company.

17.

FINANCIAL INSTRUMENTS AND RELATED DISCLOSURESOn March 10, 2008, the ASBJ revised ASBJ Statement No. 10 "Accounting Standard for Financial Instruments"
and issued ASBJ Guidance No. 19 "Guidance on Accounting Standard for Financial Instruments and Related
Disclosures". This accounting standard and the guidance are applicable to financial instruments and related
disclosures at the end of the fiscal years ending on or after March 31, 2010 with early adoption permitted fromthe beginning of the fiscal years ending before March 31, 2010. The Group applied the revised accounting
standard and the new guidance effective March 31, 2010.
(1) Group Policy for Financial Instruments
The Group uses financial instruments, mainly bank loans based on its capital financing plan. Short-termbank loans are used to fund its ongoing operations. Derivatives are used, not for speculative purposes, but
to manage exposure to financial risks as described in (2) below.
(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables such as trade notes and trade accounts are exposed to customer credit risk. Payment terms of
payables, such as trade notes and trade accounts, are primarily less than one year. Payment in foreign
currencies are exposed to the market risk of fluctuation in foreign currency exchange rates. Investment
securities are exposed to the risk of market price fluctuations. Short-term bank loans and long-term debt are
related to ongoing operations and working capital. Although a part of such bank loans are exposed tomarket risks from changes in variable interest rates, those risks are mitigated by using derivatives of interest
rate swaps. Long-term deposits received are mainly related to entry deposits of golf course, and its exposed
to liquidity risk.
(3) Risk Management for Financial Instruments
Credit risk management
Credit risk is the risk of economic loss arising from a counterparty's failure to repay or service debt
according to the contractual terms. The Group manages its credit risk from receivables on the basis ofinternal guidelines, which include monitoring of payment term and balances of major customers by eachbusiness administration department to identify the default risk of customers in early stage.
The counterparties to the Group's derivative contracts are limited to major international financial institution
to reduce credit risk.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31,
2011.

- 24 -

Market risk management (foreign exchange risk and interest rate risk)
Foreign currency trade payables are exposed to market risk resulting from fluctuations in foreign currency
exchange rates. Such foreign exchange risk is hedged principally by forward foreign currency contracts. In
addition, when foreign currency trade payables are expected from forecasted transaction, forward foreign
currency contract may be used under the limited contract term of one year.
Interest rate swaps are used to manage exposure to market risks from changes in interest rates of loan
payables.
Investment securities are managed by monitoring market values and financial position of issuers on aregular basis.
Derivative transactions entered into by the group have been made in accordance with internal policies that
regulate the authorization and credit limit amount.
Liquidity risk management
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on maturity
dates. The Group manages its liquidity risk by holding adequate volumes of liquid assets at the level of one
month's sales volume, along with adequate financial planning by the corporate treasury department.
(4) Fair Value of Financial Instruments
Fair values of financial instruments are based on quoted price in active markets. If quoted price is notavailable, other rational valuation techniques are used instead.
Fair Value of Financial Instruments
Carrying amounts, fair values and the differences between carrying mounts and fair values as ofMarch 31, 2011 are as follows. The accounts deemed to be extremely difficult to calculate the fairvalues are not included in the following:
Millions of Yen
Carrying
AmountFair Value

Cash and cash equivalents
Notes and accounts receivable
Investment securities

¥

¥

Total

March 31, 2011

5,958
17,1143,280¥-¥ 26,352¥ 26,352¥-

Notes and accounts payable
Short-term bank loans
Current portion of long-term debt (exclude
obligations under finance leases)
Long-term debt (exclude obligations under financeleases)Long-term deposits received¥ 10,742
17,255¥ 10,742
17,255

¥

-

615

615

-

555
1,129

567
927

(12 )
202

Total

¥ 30,296¥ 30,106¥ 190- 25 -

5,958
17,114
3,280

Unrealized
Gain/LossMillions of Yen
Carrying
AmountFair Value

Cash and cash equivalents
Notes and accounts receivable
Investment securities

¥

¥

Total

March 31, 2010

3,302
12,464
3,975

Unrealized
Gain/Loss

3,302
12,464
3,975¥-¥ 19,741¥ 19,741¥-

Notes and accounts payable
Short-term bank loans
Current portion of long-term debt (exclude
obligations under finance leases)
Long-term debt (exclude obligations under financeleases)Long-term deposits received

¥

¥

¥

-

5,238
6,554

5,238
6,554

660

660

-

1,144
1,171

1,186
958

(42 )
213

Total

¥ 14,767¥ 14,596¥ 171

March 31, 2011

Thousands of U.S. Dollars
Carrying
Unrealized
Fair Value
AmountGain/Loss

Cash and cash equivalents
Notes and accounts receivable
Investment securities

$

Total

71,653205,816
39,444$71,653205,816
39,444$-$ 316,913$ 316,913$-

Notes and accounts payable
Short-term bank loans
Current portion of long-term debt (exclude
obligations under finance leases)
Long-term debt (exclude obligations under financeleases)Long-term deposits received$ 129,190
207,512$ 129,190
207,512

$

-

7,400

7,400

-

6,675
13,575

6,817
11,146(142 )
2,429

Total

$ 364,352$ 362,065$ 2,287

Cash and cash equivalents and Notes and accounts receivable
The carrying values of cash and cash equivalents and Notes and accounts receivable approximate fairvalue because of their short maturities.
Investment securities
The fair values of marketable and investment securities are measured at the quoted market price of thestock exchange for the equity instruments, and at the quoted price obtained from the financial
institution for certain debt instruments. The information of the fair value for the investment securities
by classification is included in Note 4.
Notes and accounts payable, Short-term bank loans and Current portion of long-term debt
The carrying values of Notes and accounts payable, Short-term bank loans and Current portion of
long-term debt approximate fair value because of their short maturities.

- 26 -

Long-term debt
The fair values of long-term debt are determined by discounting the cash flows related to the debt at
the Group's assumed corporate borrowing rate.
The fair values of floating rate debt that apply interest rate swaps which qualify for hedge accounting
and meet specific matching criteria as means for hedging, are determined by discounting the cash
flows related to the debt that include interest rate swaps as a unit at the Group's assumed corporate
borrowing rate.
Long-term deposits received
The fair values of long-term deposits received are determined by discounting the future cash flows
estimable from the past refund experience, by the estimated interest rate reflecting assumed refund
period and credit risk.
Derivatives
The information of the fair value for derivatives is included in Note 18.
(5) Maturity Analysis for Financial Assets with Contractual Maturities

Due in One
Year or LessMarch 31, 2011
Cash and cash equivalents
Notes and accounts receivable
Investment securities
Available-for-sale securities with
contractual maturities
Total

¥

Cash and cash equivalents
Notes and accounts receivable
Investment securities
Available-for-sale securities with
contractual maturities

¥ -

-

-

287

945

¥ 23,072

¥ -

¥ 287

¥ 945

Total

¥

¥

-

Due after
Ten Years

5,958
17,114Due in One
Year or LessMarch 31, 2010

Millions of Yen
Due after
Due after
One Year
Five Years
through Five through Ten
Years
Years

Millions of Yen
Due after
Due after
One Year
Five Years
through Five through Ten
Years
Years

¥

-

Due after
Ten Years

3,302
12,464

¥ -

¥ -

-

13

35

1,590

¥ 15,766

¥ 13

¥ 35

¥ 1,590- 27 -¥-

Due in One
Year or LessMarch 31, 2011
Cash and cash equivalents
Notes and accounts receivable
Investment securities
Available-for-sale securities with
contractual maturities
Total
18.

$

Thousands of U.S. Dollars
Due after
Due after
One Year
Five Years
through Five through Ten
Years
Years
$

-

Due after
Ten Years

71,653205,816

$ -

$

-

-

-

3,457

11,365$ 277,469$ -$ 3,457$ 11,365

DERIVATIVESThe Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain
liabilities denominated in foreign currencies. The Group also enters into interest rate swap contracts to manage
its interest rate exposures on certain liabilities.
All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within
its business. Accordingly, market risk in these derivatives is basically offset by an opposite movements in thevalue of hedged liabilities.
Because the counterparties to these derivatives are limited to major international financial institutions, the Group
does not anticipate any losses arising from credit risk.
Derivative transactions entered into by the Group have been made in accordance with internal policies which
regulate the authorization and credit limit amount.
Derivative transactions to which hedge accounting is applied

Hedged ItemAt March 31, 2011
Foreign currency forward contracts:
Buying U.S.$

PayablesCurrent portion ofInterest rate swaps:(fixed rate payment, floating rate receipt) long-term debt
Short-term bankloans

- 28 -

Millions of Yen
Contract
AmountContract
due after
One YearAmount

Fair
Value

¥

-

¥ -

¥ -

¥ 2,100

¥ -

¥ -

400

-

Hedged ItemAt March 31, 2010
Foreign currency forward contracts:
Buying U.S.$

PayablesInterest rate swaps:(fixed rate payment, floating rate receipt)

Millions of Yen
Contract
Amountdue after
Contract
AmountOne Year

Fair
Value

¥

-

¥ 0
¥ -

9

¥

Long-term debt

¥ 2,100¥ 420

Short-term bank
loans

400

-

Thousands of U.S. Dollars
Contract
Amountdue after
Contract
One YearHedged Item
Amount

At March 31, 2011
Foreign currency forward contracts:
Buying U.S.$

PayablesCurrent portion ofInterest rate swaps:(fixed rate payment, floating rate receipt) long-term debt
Short-term bank
loans

$

Fair
Value

-

$ -

$ -

$ 25,256

$ -

$ -

4,811

-

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.
The contract amounts of derivatives which are shown in the above table do not represent the amounts exchangedby the parties and do not measure the Group's exposure to credit or market risk.
The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are notremeasured at market value but the differential paid or received under the swap agreements are recognized andincluded in interest expense or income. In addition, the fair value of such interest rate swaps is included in thatof hedged items (i.e. Current portion of long-term debt).
19.

COMPREHENSIVE INCOME
For the year ended March 31, 2010
Total comprehensive income for the year ended March 31, 2010 was the following:
Millions of
Yen
Total comprehensive income attributable to:
Owners of the parent
Minority interests¥ 1,32950

Total comprehensive income¥ 1,379- 29 -

Other comprehensive income for the year ended March 31, 2010 consisted of the following:
Millions of
Yen
Other comprehensive income:Unrealized gain on available-for-sale securities
Deferred loss on derivatives under hedge accounting
Foreign currency translation adjustments
Share of other comprehensive income in associates

¥ 463
(1 )
(76 )
-

Total other comprehensive income
20.

¥ 386

NET INCOME PER SHARE
Details of the basic net income per share ("EPS") for the years ended March 31, 2011 and 2010 were as follows:
Millionsof YenNet Income

Thousandsof Shares
Weighted
Average Shares¥ 1,337

25,950¥ 51.53¥ 952

25,954¥ 36.66

Yen

Dollars
EPS

For the year ended March 31, 2011:
Basic EPS
Net income available to commonshareholders$ 0.62For the year ended March 31, 2010:
Basic EPS
Net income available to commonshareholders

Diluted net income per share is not disclosed because there are no outstanding potentially dilutive securities.

- 30 -

21.

RELATED PARTY DISCLOSURESThe transactions between the Company and related parties
Transactions of the Company and related parties for the years ended March 31, 2011 and 2010 were as follows:
Fiscal year ended March 31, 2011
Millions ofYenType of Related Parties

Name

Address

Owned by certain directors of the company
and their relatives.

Hasegawa Kosan Co.,Ltd.

Kakogawa-shi, Hyogo,
Japan

Millions of
Yen

CapitalAmountDescription of Business¥40

Insurance agent

Percentage of Equity
Ownership in the
Company(Owned)Direct 17.64

Nature of Transactions
Payment of insurance

Amount¥85

Notes: Hasegawa Kosan Co., Ltd. is wholly held by Yoshihiro Hasegawa and his close relatives who is the representative director of the Company.
Fiscal year ended March 31, 2010
Millions ofYenType of Related Parties

Name

Address

Owned by certain directors of the company
and their relatives.

Hasegawa Kosan Co.,
Ltd.
Harima Food, Inc.

Kakogawa-shi, Hyogo,
Japan
Kakogawa-shi, Hyogo,
Japan

CapitalAmountMillions ofYen
Description of Business¥40

Insurance agent

30

Food manufacturing

Notes: Hasegawa Kosan Co., Ltd. is wholly held by Yoshihiro Hasegawa and his close relatives who is the representative director of the Company.
Harima Food, Inc. is wholly owned subsidiary of Hasegawa Kosan Co., Ltd.
22.

SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2011 was approved at the Company's Board of Directors' meeting held on May 20, 2011:

Year-end cash dividends, ¥8 ($0.10) per share

Millionsof YenThousands of
U.S. Dollars¥208$2,497- 31 -

Percentage of Equity
Ownership in the
Company(Owned)Direct 17.64-

Nature of Transactions

Thousands of
U.S. Dollars

AmountPayment of insurance¥ 10

Sales of foodPurchase of land

17
327

$1,022

23.

SEGMENT INFORMATION
For the years ended March 31, 2011 and 2010
In March 2008, the ASBJ revised ASBJ Statement No. 17 "Accounting Standard for Segment Information Disclosures" and issued ASBJ Guidance No. 20 "Guidance on AccountingStandard for Segment Information Disclosures". Under the standard and guidance, an entity is required to report financial and descriptive information about its reportable segments.
Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate
financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources tooperating segments. This accounting standard and the guidance are applicable to segment information disclosures for the fiscal years beginning on or after April 1, 2010.
The segment information for the year ended March 31, 2010 under the revised accounting standard is also disclosed hereunder as required.
1.

Description of reportable segments
The Group's reportable segments are those for which separately financial information is available and regular evaluation by the Company's management is being performed in orderto decide how resources are allocated among the Group. Therefore, the Group consists of "Resin & Tall Oil Products", "Paper Chemicals" and "Electronics Materials". "Resin &Tall Oil Products" manufactures and sells paint resin, resins for print inks, tall oil products and synthetic rubber emulsifiers. "Paper Chemicals" manufactures and sells paper
strengthening agents, sizing agents and surface coating agents. "Electronics Materials" manufactures and sells electronics materials.

2.

Methods of measurement for the amounts of sales, profit, assets, liabilities and other items for each reportable segment
The accounting policies of each reportable segment are consistent to those disclosed in Note 2, "Summary of Significant Accounting Policies".

3.

Information about sales, profit and other items is as follows.
Millions of Yen
2011
Reportable Segment

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit
Other:
Depreciation
Net result of interest income andinterest expense
Notes:

Resin &
Tall Oil
Products

Paper
ChemicalsElectronics
Materials

Total

Other

Total

Reconciliations

Consolidated¥ 19,673
207
19,8802,040¥ 12,972
12,972727¥ 4,855
4,855
308¥ 37,500
207
37,707
3,075¥ 4,02138
4,059
5¥ 41,521
245
41,7663,080¥ (26 )
(245 )(271 )(314 )¥ 41,495
41,495
2,766

663

565

246

1,474

156

1,630

(13 )

1,617

¥

(71 )

¥

(15 )

¥

(15 )

¥

(101 )

¥

(84 )

¥

(185 )¥-¥(185 )"Other" division is business segment not attributable to reportable segment and include mainly real estate management, etc.
Reconciliations of segment profit include reconciliations of inventories ¥36 million ($437 thousand) and company-wide income and expenses that are not attributable toreportable segment ¥309 million ($3,713 thousand), etc.
Segment profits are adjusted to certain other income and expenses from operating income on consolidated statements of income.
Assets are not allocated into reportable segments how to determine the allocation of management resources and how to assess performance of the Company.

- 32 -

Millions of Yen
2010
Reportable Segment

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit (loss)
Other:
Depreciation
Amortization of goodwill
Net result of interest income andinterest expense
Equity in earnings of associatedcompanies
Notes:

Resin &
Tall Oil
Products

Paper
ChemicalsElectronics
Materials

Total

Other

Total

¥ 15,910
201
16,111801¥ 10,970
3
10,973658¥ 3,753
3,753
310¥ 30,633
204
30,837
1,769¥ 2,870112
2,982(122 )¥ 33,503
316
33,819
1,647

602
-

635
-

266
-

1,503
-

164
3

(34 )

(13 )

(19 )

(66 )

(109 )

¥

-

¥

-

¥

-

¥

-

¥

-

Reconciliations(8 )(316 )(324 )(50 )¥ 33,495
33,495
1,597

1,667
3

10
10

1,677
13

(175 )-(175 )¥-¥

Consolidated

¥

35

¥

35

"Other" division is business segment not attributable to reportable segment and include mainly real estate management, etc.
Reconciliations of segment profit include reconciliations of inventories ¥150 million and company-wide income and expenses that are not attributable to reportablesegment ¥172 million, etc.
Segment profits are adjusted to certain other income and expenses from operating income on consolidated statements of income.
Assets are not allocated into reportable segments how to determine the allocation of management resources and how to assess performance of the Company.
Thousands of U.S. Dollars
2011
Reportable Segment

Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit
Other:
Depreciation
Net result of interest income andinterest expense

Resin &
Tall Oil
Products

Paper
ChemicalsElectronics
Materials

Total

Other

Total

$ 236,591
2,488
239,079
24,529$ 156,008
156,008
8,741$ 58,393
58,3933,708$ 450,992
2,488
453,480
36,978$ 48,359
457
48,81658$ 499,351
2,945
502,296
37,036

7,977

6,793

2,956

17,726

1,882

19,608(1,212 )$ (1,019 )$(851 )$(181 )$(180 )- 33 -$$(2,231 )Reconciliations$$

Consolidated(317)(2,945)(3,262)(3,774)$ 499,034
499,034
33,262(162)

19,446-$(2,231 )[Related information]
1.

Information about finished products and services
This information is omitted because it is the same as is recorded for segment information.

2.

Information about geographical areas
Net sales to customers and property, plant and equipment by regions for the year ended March 31,
2011 was as follows:(1) Net sales
Millions of Yen
Japan

South andNorth
America

Asia

Other

Total

¥32,079¥4,797¥4,346¥273¥41,495

Japan

Thousands of U.S. Dollars
South andNorth
America
Asia
Other

Total

$385,798$57,691$52,263$3,282$499,034

Note: Sales are classified into countries or regions based on customer's locations.
(2) Net property, plant and equipment
Millions of Yen
Japan

South andNorth
America

Asia

Europe

Other

Total

¥14,883¥1,697¥1,780¥2,158¥714¥21,232

Japan

South andNorth
America

Asia

Europe

Other

Total

$178,986$20,413$21,406$25,953$8,583$255,341

Thousands of U.S. Dollars(3) Information by principle customers
There are no indication because within the net sales from external customers, there are no
customers that covers more than 10% of whole consolidated net sales.

- 34 -

[Loss on impairment of long-lived assets by reportable segment]
Loss on impairment of long-lived assets by reportable segment for the year ended March 31, 2011 were as follow:
Millions of Yen
Resin & Tall
Oil Products
Long-lived assets¥-

Resin & Tall
Oil Products
Long-lived assets$-

Reportable Segment
Paper
Electronics
Chemicals
Materials
¥-

Total

Other

Eliminations/
Corporate

Consolidated

¥54

¥-

¥-

¥54

Eliminations/
Corporate

Consolidated

$-

$648

¥54

Thousands of U.S. Dollars
Reportable Segment
Paper
Electronics
Total
Other
Chemicals
Materials
$-

$648

$648

$-

[Amortization of goodwill and amount of goodwill by reportable segment]
The amortization of goodwill and amount of goodwill by reportable segment for the year ended March 31, 2011 were as follow:
Millions of Yen
Resin & Tall
Oil Products
Amortization of goodwill
Amount of goodwill¥

126

Resin & Tall
Oil Products
Amortization of goodwill
Amount of goodwill

$

1,514

Reportable Segment
Paper
Electronics
Chemicals
Materials
¥-

¥-

Total

Other

Eliminations/
Corporate

Consolidated

¥

¥-

¥4
-

¥ 4
126

Eliminations/
Corporate

Consolidated

126

Thousands of U.S. Dollars
Reportable Segment
Paper
Electronics
Total
Other
Chemicals
Materials
$-

$-

$

1,514

$-

$44
-

$

For the year ended March 31, 2010
The Company operates in the following industries:"Resin & Tall Oil Products Business" manufactures and sells paint resin, resins for print inks, tall oil products and synthetic rubber emulsifiers.
"Paper Chemicals Business" manufactures and sells paper strengthening agents, sizing agents and surface coating agents.
"Electronics Materials Business" manufactures and sells electronics materials.
"Other" manages mainly real estate, etc.

- 35 -

44
1,514

Information about industry segments, geographical segments and sales to foreign customers of the Group for the year ended March 31, 2010 is as follows:(1) Industry Segmentsa.

Sales and Operating Income
Millions of Yen
Resin & Tall
Oil Products
Business

Paper
Chemicals
Business

Electronics
Materials
Business

Other

Total

Sales to customers¥ 18,219¥ 11,336¥ 3,701¥ 239¥ 33,495

Intersegment sales

-

-

-

-

Total sales

18,21911,336

3,701

Operating expenses

16,20910,514

Operating income (loss)
b.

¥

2,010

¥

822

¥

Eliminations/
Corporate-¥ 33,495

-

-

-

239

33,495-33,4953,312

294

30,3291,831

32,160389¥ (55 )

3,166

¥ (1,831 )¥¥Consolidated

¥

1,335

Total Assets, Depreciation, Impairment Loss and Capital Expenditures
Millions of Yen
Resin & Tall
Oil Products
Business

Paper
Chemicals
Business

Electronics
Materials
Business

Other

Total

Eliminations/
Corporate

Consolidated¥ 19,202537
9689¥ 12,890
664
9302¥ 4,069
252
37¥ 4,14489
64356¥ 40,305
1,542
82
1,384

¥ 5,635
135
156¥ 45,940
1,677
82
1,540

Eliminations/
Corporate

Consolidated

Total assets
Depreciation
Impairment loss
Capital expenditures(2) Geographical Segments

The geographical segments of the Company and its subsidiaries for the year ended March 31, 2010 are summarized as follows:
Millions of Yen
Japan

South andNorth America

Asia

Other

Total

Sales to customers¥ 27,839¥ 3,675¥ 1,881¥ 100¥ 33,495

Intersegment sales

535

114

720

-

28,374

3,789

2,601

25,4383,809

Total sales
Operating expenses
Operating income (loss)

¥

2,936

Total assets¥ 33,285

¥

(20 )

-

¥ 33,495

1,369(1,369 )-100

34,864(1,369 )33,4952,326

130

31,703457

32,160275¥ (30 )¥

3,161

¥ (1,826 )¥¥ 4,177¥ 325¥ 41,053¥ 4,887¥ 45,940¥¥ 3,266- 36 -¥

1,335

(3) Sales to Foreign Customers
Sales to foreign customers for the year ended March 31, 2010 are summarized as follows:
Millions of Yen
South andNorth
America

Asia

Other

Total

¥3,709¥2,508¥133¥6,350

Sales to foreign customers******- 37 -

- 38 -

Corporate Overview (As of March 31, 2011)
FoundedNovember 18, 1947

Capital Stock

10,012.95 million yen

Head Office671-4, Mizuashi, Noguchi-cho, Kakogawa-shi, Hyogo, Japan

Osaka Head Office

4-4-7 Imabashi, Chuo-ku, Osaka

Tokyo Head Office

3-8-4 Nihonbashi, Chuo-ku, Tokyo

Laboratories

Central Research Laboratory, Tsukuba Research Laboratory

PlantsKakogawa Plant, Tokyo Plant, Fuji Plant, Ibaraki Plant, Hokkaido Plant, Sendai
Plant, Shikoku Plant

Sales Offices

Tokyo Sales Office, Osaka Sales Office, Nagoya Sales Office, Kyushu Sales
Office, Fuji Sales Office, Hokkaido Sales Office, Sendai Sales Office, Shikoku
Sales Office

Number of Employees

417 (Consolidated: 1,582)

Number of Group Companies

37

Business Activities

Manufacture and sale of Resin & Tall Oil Products , Paper Chemicals ,Electronics Materials, etc.

Websitehttp://www.harima.co.jp/en/index.html- 39 -

Principal Subsidiaries
Company name
Harima Trading, Inc.

48,000 thousand yen

Percentage ofequityparticipation (%)
100

Seven Rivers, Inc.

14,000 thousand yen

100

Harima M.I.D., Inc.

300,000 thousand yen

75

Harima Kasei Polymer Co., Ltd.

10,000 thousand yen

100

Nippon Filler Metals, Ltd.

45,000 thousand yen

100

HARIMA USA, Inc.

3,350 thousand US
Dollars
400 thousand Brasil real

100

Harima do Brasil Industria Quimica
Ltda.

Capital stock

87.2

Harimatec Hangzhou Co., Ltd.

8,690 thousand Chinese
yuan

85

Harimatec Malaysia Sdn. Bhd.

1,356 thousand
Malaysian ringgit

85

Hangzhou Hanghua-Harima Paper
Chemicals Co., Ltd.

52,296 thousand
Chinese yuan

56.07

Nanning Harima Chemicals Co., Ltd.

48,234 thousand
Chinese yuan

95

Harimatec Czech, s.r.o.

7,000 Czech koruna

100

Xinyi Rihong Plastic Chemical Co.,Ltd.

27,390 thousand
Chinese yuan

80

Xinyi Zhonglin Rosin Co., Ltd.

12,000 thousand yuan81

Lawter B.V.

17,600 thousand Euro90

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Main business
Real estate
management, etc.
Manufacture andsale of industrial
detergents, etc.
Manufacture andsale of tall oil
products
Manufacture andsale of resins forprinting inks, etc.
Manufacture andsale of electronicmaterials
Control of US
operations
Manufacture andsale of rosin andits derivatives
Manufacture andsale of electronicmaterials
Manufacture andsale of electronicmaterials
Manufacture andsale ofpapermaking
chemicals
Manufacture andsale of rosin andits derivatives
Manufacture andsale of electronicmaterials
Manufacture andsale of rosin andits derivatives
Manufacture andsale of rosin andits derivatives
Control of Lawter
Group’soperations

Directors and Corporate Auditors (As of June 28, 2011)
President
Senior Executive Director
Executive Director
Executive Director
Director
Director
Director
Director
Director
Director
DirectorStanding Corporate Auditor
Corporate Auditor*
Corporate Auditor*

Yoshihiro Hasegawa
Nobuo Makino
Masanao Kono
Teruo Kaneshiro
Satoru Iwasa
Yorishige Matsuba
Yasuhiro Mizutani
Yoshinobu Matsuda
Mitsunori Kiyono
Fumiaki Tsuchida
Ichiro Taninaka
Setsuo Kobayashi
Tatsuya Michigami
Hidenori Hiramatsu* denotes Outside Corporate Auditors.
Status of Shares (As of March 31, 2011)(1) Total number of shares authorised to be issued 59,500,000(2) Total number of shares outstanding
26,080,396(including 130,808 shares of treasury stocks)(3) Number of shareholders
2,649(4) Major shareholders
Status of shareholding
Number of shares held
Ratio of number of shares held(Thousands of shares)
against total number of shares
outstanding (%)
Hasegawakosan Co., Ltd.
4,558
17.56
Yoshihiro Hasegawa
1,334
5.14
Sumitomo Mitsui Banking
1,094
4.21
Corporation
Shorai Foundation for Science805
3.10
and Technology
Harima Chemicals Mutual804
3.10
Prosperity Association
THE MINATO BANK, LTD.
692
2.66
Shorai, Ltd.
687
2.64
Keihansin Kougyou
672
2.58
Corporation
Japan Trustee Services Bank,
622
2.39
Ltd. (Account in trust)
The Master Trust Bank of
527
2.03
Japan, Ltd. (Account in trust)(Notes) 1. In “Number of shares held,” figures less than one thousand are rounded down.
2. Ratio of number of shares held against total number of shares outstanding is determined basedon the total number of shares outstanding minus the number of treasury stocks (130,808
shares), which amounts to 25,949,588 shares. The number shown is rounded down to two
decimal places.

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